Complacency? Maybe, But Not in Long-Term VIX Futures

Monday, 15 July 2013

S&P500 closed at new all-time high of 1682.50 on Monday. It has moved up for 8 consecutive trading days (a streak only seen once in March 2013 and never in 2005-2012; longest streak of up days since 1996 has been 9 days).

The VIX is in the 13’s. It has lost 6.7 points from its highest close of 20.49 (6/20) and more than 8 points from its intraday high of 21.91 (6/24).

Spot VIX

The word “complacency” has again started to find its way into blog posts and expert interviews. But that complacency is not everywhere.

A month ago, while the “QE tapering” correction and volatility spike was still only halfway to its full size (VIX was trading around 17), I made a post titled: The Main Story of This VIX Spike Is on the Long End of the Curve. The point was that longer-term VIX futures were much stronger compared to the two previous VIX spikes (February and April 2013).

Today the VIX spike seems to be over, but its main story is still on the long end of the curve – because the spike on the long end is not over at all.

VIX Futures Curve

Below you can see the current VIX futures curve (green) and how it compares with 4/29 (blue – day with similar spot VIX level after the April VIX spike) and 5/22 (yellow – the day when the May-June spike began, again with spot VIX similar to the current level).

VIX futures curve

You can see that November, December, and January futures are actually higher now than they were at the end of April, even when there are 2.5 months less to expiration (all the curves are in steep contango and therefore individual contracts should normally be losing value with passing time).

Constant Maturity VIX Futures Charts

Below you can find updated charts of constant maturity VIX futures – those I had published in the June post. Their advantage is that they can compare longer-term VIX futures prices on different days without the distorting effect of changing time to expiration. I calculate them by interpolating the prices of two actual VIX futures contracts which are closest to the particular fixed number of days to expiration (this is not unlike the calculation of the official investable VIX futures indices, but it excludes the roll yield effect).

You can see that even after the decline in the last three weeks, VIX futures with 4 and more months to expiration are still higher than where they were when the correction began (5/22 FOMC Minutes + Bernanke testimony). Moreover, longer term futures (5 and more months) are even above the highs of the previous two VIX spikes (February and April 2013).

Constant maturity VIX futures Constant maturity VIX futures Constant maturity VIX futures Constant maturity VIX futures Constant maturity VIX futures Constant maturity VIX futures Constant maturity VIX futures


Although it is not that obvious from the headline spot VIX number, VXX, or short-term VIX futures, volatility expectations have changed in light of the possible QE tapering (+ China, Europe, and other concerns – choose your favourite fundamental explanation). Long-term VIX futures prices have not come down to the typical “complacent” 1H2013 levels.

If you want to understand volatility markets, look beyond the headlines.